If oil prices keep rising, Govt will have to act: Montek

OIL IS WELL: The Deputy Chairperson of Planning Commission defends fuel price rise.

        

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Montek Singh Ahluwalia: That depends on what happens to the oil price. There is an element of uncertainty. There are reasons why action may not have been taken earlier. It was not really clear for how long the oil price would remain high. It’s only in the last month...

Karan Thapar: You say it wasn’t clear how long the oil price would remain high. The truth is that between June 1, 2007 and Jan 1, 2008, the oil prices increased almost 50 per cent. There was no doubt about it.

Montek Singh Ahluwalia: I don’t think in any country domestic prices are changed instantaneously. You could do it that way. You had to make a judgement. Is this a spike? Is it a temporary increase? Will the slowdown in the world economy moderate the increase? Even today there is doubt. Some people think that oil prices will go unto $200 a barrel and others think that with slowdown of world growth, they will come down.

Karan Thapar: The whole world made a judgement that this wasn’t a spike and it was in fact a frightening increase that seem to be rolling forward. The only people who did not come to a judgement were the Indian government.

Montek Singh Ahluwalia: I don’t think that is correct. In the case of Malaysia for example, their timing of the price increase was almost the same as ours.

Karan Thapar: And look at the amount to which they have increased thereafter.

Montek Singh Ahluwalia: That is true. But they have done a very complicated kind of pricing.

Karan Thapar: But they compensated for the delay with a very sizeable increase. You have compounded the delay with a minimal increase.

Montek Singh Ahluwalia: I think the reason for this is that Malaysian petrol prices at the pump were actually quite low. Indian petrol prices at the pump have always been quite high. It has been a source of revenue for the state. What has happened is that with the rise in oil prices, we have been basically cutting taxes down. I don’t think that petrol at the moment is an over priced commodity. If prices rise, you may have to adjust.

Karan Thapar: Since you announced the price increase in India on June 4, it has increased internationally by another $12 a barrel. It is likely to increase another $5 or $6 a barrel in the next month or so. Are you now going to increase the Indian oil prices again?

Montek Singh Ahluwalia: It is not for me to predict what is going to happen week after week. But the issue you raised is a very relevant one. Compared to last year—and last year we did not pass on the full price increase because we felt that the oil bonds could insulate the companies a little bit. Now compared to last year, there has been a $45 a barrel increase in the prices.

We import about 90 million tonnes for our consumption and that means that this import will cost us about $29 billion more, which is about rupees hundred and thousand crore. Now that is the extra burden compared to last year. The issue is that someone has to pay for it. What have we done? We have distributed the burden. We have raised prices worth about Rs 21 thousand crores, we have lowered taxes to about Rs 22 thousand crores, oil companies will bear some burden and they are giving out oil bonds. So share it.

Karan Thapar: The point I want to make is that you say you have distributed the burden, but have you distributed it wisely? Could not and should not the petrol and LPG consumers pay more?